The Marketplace Fairness Act is set to be voted upon within the next several days. It empowers states to compel retailers outside their borders to collect sales tax for online purchases. In other words, an Illinois retailer shipping to a Californian would now be required to collect California sales tax then send that money back to the Golden State. At present, states can only require this of companies that have an in-state physical presence.

However, there is currently an exemption for retailers that make less than $1 million in out-of-state revenue—but Donahoe pushed for this limit to be raised to $10 million, or for the exemption to cover companies with less than 50 employees.

"This legislation treats you and big multi-billion dollar online retailers—such as Amazon—exactly the same," Donahoe wrote. "Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer."

The legislation is supported by a long list of companies and politicians: Amazon, Barnes & Noble, Best Buy, Gap, Wal-Mart, and 29 bi-partisan state governors. Notable opponents include eBay, the Heritage Foundation, and Americans for Tax Reform among others.

Promoted Comments

I've gotta say, I have no sympathy for eBay's position on this. If you buy something on eBay, or anywhere else you were always (technically) required to pay sales tax -- just like you have to at any small business. It's just that no one ever did, which amounted to a subsidy for online retail.

There was an argument that, when online retail was new, that kind of subsidy was justified. That justification has long since passed.

All that's changing here is that they're going to start actually enforcing the law.

I've gotta say, I have no sympathy for eBay's position on this. If you buy something on eBay, or anywhere else you were always (technically) required to pay sales tax -- just like you have to at any small business. It's just that no one ever did, which amounted to a subsidy for online retail.

There was an argument that, when online retail was new, that kind of subsidy was justified. That justification has long since passed.

All that's changing here is that they're going to start actually enforcing the law.

This creates problems for small online businesses. For example, my neighbor and I live in the same town but 2 different counties with slightly different sales tax rates in the same zip code, and we are only 50 feet apart. Getting the correct sales tax based on where someone lives can have difficulties. Would this apply to Craigslist or other online-garage-sale-equivalents?

In some ways, I think this makes sense only if brick and mortar stores have the same requirement - pay sales tax based on where you live and not where the store is. That would be a mess, and so could this.

I've gotta say, I have no sympathy for eBay's position on this. If you buy something on eBay, or anywhere else you were always (technically) required to pay sales tax -- just like you have to at any small business. It's just that no one ever did, which amounted to a subsidy for online retail.

There was an argument that, when online retail was new, that kind of subsidy was justified. That justification has long since passed.

All that's changing here is that they're going to start actually enforcing the law.

@brdv: IIRC the online sales tax proposals do not allow local tax code variations like the one you describe. I believe that states which would collect online sales tax have to follow certain minimum standards, which may or may not be this one: http://en.wikipedia.org/wiki/Streamline ... ax_Project

Also, I have some sympathy for companies with "small" out-of-state revenue (under $1 million), but Donohue's proposal is ludicrous. Especially the 50 employee minimum. If a company is raking in hundreds of thousands per employee, they can afford to buy some tax accounting software.

I've gotta say, I have no sympathy for eBay's position on this. If you buy something on eBay, or anywhere else you were always (technically) required to pay sales tax -- just like you have to at any small business. It's just that no one ever did, which amounted to a subsidy for online retail.

There was an argument that, when online retail was new, that kind of subsidy was justified. That justification has long since passed.

All that's changing here is that they're going to start actually enforcing the law.

This creates problems for small online businesses. For example, my neighbor and I live in the same town but 2 different counties with slightly different sales tax rates in the same zip code, and we are only 50 feet apart. Getting the correct sales tax based on where someone lives can have difficulties. Would this apply to Craigslist or other online-garage-sale-equivalents?

In some ways, I think this makes sense only if brick and mortar stores have the same requirement - pay sales tax based on where you live and not where the store is. That would be a mess, and so could this.

If your "small" business makes more than one million in out of state revenue, we have to take a close look at your definition of "small."

This creates problems for small online businesses. For example, my neighbor and I live in the same town but 2 different counties with slightly different sales tax rates in the same zip code, and we are only 50 feet apart. Getting the correct sales tax based on where someone lives can have difficulties. Would this apply to Craigslist or other online-garage-sale-equivalents?

In some ways, I think this makes sense only if brick and mortar stores have the same requirement - pay sales tax based on where you live and not where the store is. That would be a mess, and so could this.

If your "small" business makes more than one million in out of state revenue, we have to take a close look at your definition of "small."

I support a tax on online purchases, but I don't like the implementation. It puts the burden too much on small businesses to enforce and collect the taxes which could vary widely.

I'd rather see a federal tax (by definition we're talking about interstate commerce here or the local state tax would apply), at a flat rate, and distributed to the states by the federal government in accordance with how much revenue was sent in from each state. In other words, simplify it and shift as much of the burden of implementation to the federal government as possible.

Purely in-state transactions can continue to be based on a state tax and handled as they are currently.

There is already an exemption, he just wants it to be higher? How does he arrive at 10 million/50 employees and how is that better than the existing exemption?

But also, now businesses are expected to collect sales tax based on the location of the customers? I thought the philosophy behind sales tax was to promote the well-being of communities in the vicinity of successful enterprise. What is the philosophy behind customer tax, enrich communities of people who spend money? That's kind of a closed loop.

Anyway, I'm not touching this one way or another. Times like this I wish we had a specific vote of no-vote option.

In my opinion, if we are serious about collecting online sales tax, the federal government is the best equipped to do so. No way is a small business going to remit money to fifty states - that is just a mess no small business owner should have to put up or deal with.

I advocate a national sales tax for online sales, which should then be remitted to state governments. It simplifies the process for all parties involved - the state, the merchant, and the buyer.

There is already an exemption, he just wants it to be higher? How does he arrive at 10 million/50 employees and how is that better than the existing exemption?

But also, now businesses are expected to collect sales tax based on the location of the customers? I thought the philosophy behind sales tax was to promote the well-being of communities in the vicinity of successful enterprise. What is the philosophy behind customer tax, enrich communities of people who spend money? That's kind of a closed loop.

Anyway, I'm not touching this one way or another. Times like this I wish we had a specific vote of no-vote option.

The ting is is that the internet removes the idea of a local community and replaces it with virtual ones irrespective of geography.

All that's changing here is that they're going to start actually enforcing the law.

This is false. What's changing is who has the responsibility for reporting and collecting the taxes. Under current law, the consumer has that responsibility. Under the proposed law, the seller has that responsibility. They are supposed to report the tabable amount of out-of-state purchases on their state income tax forms, and pay it.

What the new law will do is require all significant on-line sellers (over $1M per year) to be knowledgable on the sales tax regulations and rates of all 50 states. This is an excessive burden for the sellers, and will stiffle interstate commerce.

I know we traditionally have the businesses collect the taxes and all but I think it's a poor idea to do for online sales -- it's a pain to worry about even 50 jurisdictions, never mind when they start changing things. It would be good to simply have the retailer specify the transaction as online and then have the CC company assess the tax. For the rather huge CC companies and banks, it wouldn't be much of a burden and it'd be nice to see them do a little good, for once. Checks might be an issue but I don't think it's a big one.

National Online sales tax isn't such a bad idea, either, if only for simplicity.

On the whole though, I'd rather not upset the balance -- the large retailers have enough of an advantage in bulk purchase prices, etc..

Some background: If you live is a state that has a sales tax and you buy a taxable item from a retailer in your state, the retailer collects the tax at the time of purchase. You pay the tax, the retailer just performs the service of collecting the tax from you on behalf of the state. If you make a purchase at an out-of-state retailer, the retailer (depending on the laws in their state) may not have to collect the required tax, but you, the buyer, are still required to pay the tax. In this case, you simply remit the tax directly to the state where you live. This is typically referred to as a "use tax". That has always been the law and this proposal does not change that.

Shifting the burden of collecting and remitting use taxes from the buyer to the retailer is not a trivial issue. There are over 11,000 tax jurisdictions in the US, and they do not necessarily follow county lines or zip codes. The man across the street may have a different tax rate than you based on school levies, special development zone boundaries, etc. On top of that, you may personally have exemptions to certain sales taxes based on your employment or the item's intended use. Do you think a retailer in Delaware want to figure out the proper rate to charge someone in New Mexico? Or Montana? Or any one of the other 11,000 jurisdictions?

Retailers hate this burden of collecting taxes. Hate it with a passion. They get no revenue from it, and managing the process is not a small cost, especially to a small retailer.

Perhaps this would be the best time for some badly needed state tax reform? It is a requirement in Canada to pay tax on any internet purchase that is being delivered to you. The seller is obligated to charge the tax rate in your province.

Perhaps instead of each city having a different rate, this rate could be set statewide? Or would this be akin to herding cats?

I'm am suspicious of any of those large companies who support this. I think they only do so, because they know that sales and use tax compliance is a huge burden and it will limit competition.

I used to work in the sales and use tax compliance department in a big fortune 500 company and we had over 25 people working full time to comply and we were not cheap. It is a nightmare of different regulations and filing types.

For example, we had to file more then 30 separate returns for the state of Alabama alone. Each city and county could impose its own rates and requires its own separate return.

Texas has literally hundreds of different rates and jurisdictions but at least they let you file on one return.

This doesn't even cover things like different rates on different items or keeping records on resellers or nonprofits who are exempt or handling audits. All of which are universal among the states and if you screw any of this up, the fines and penalties are huge.

I'm am suspicious of any of those large companies who support this. I think they only do so, because they know that sales and use tax compliance is a huge burden and it will limit competition.

I used to work in the sales and use tax compliance department in a big fortune 500 company and we had over 25 people working full time to comply and we were not cheap. It is a nightmare of different regulations and filing types.

For example, we had to file more then 30 separate returns for the state of Alabama alone. Each city and county could impose its own rates.

Texas has literally hundreds of different rates and jurisdictions but at least they let you file on one return.

This doesn't even cover things like different rates on different items or keeping records on resellers who are exempt or handling audits. All of which are universal among the states and if you screw any of this up, the fines and penalties are huge.

Then we should have one set national online sales tax. At the end of the year the state gets it cut.

To much money will be wasted in administration of who to tax who and file the taxes paid. It sucks for counties/cities but in the end the states will get more overall.

This might encourage counties to keep goods such as clothes and food tax free and get people to ship locally more.

I'm am suspicious of any of those large companies who support this. I think they only do so, because they know that sales and use tax compliance is a huge burden and it will limit competition.

I used to work in the sales and use tax compliance department in a big fortune 500 company and we had over 25 people working full time to comply and we were not cheap. It is a nightmare of different regulations and filing types.

For example, we had to file more then 30 separate returns for the state of Alabama alone. Each city and county could impose its own rates.

Texas has literally hundreds of different rates and jurisdictions but at least they let you file on one return.

This doesn't even cover things like different rates on different items or keeping records on resellers who are exempt or handling audits. All of which are universal among the states and if you screw any of this up, the fines and penalties are huge.

Then we should have one set national online sales tax. At the end of the year the state gets it cut.

To much money will be wasted in administration of who to tax who and file the taxes paid. It sucks for counties/cities but in the end the states will get more overall.

This might encourage counties to keep goods such as clothes and food tax free and get people to ship locally more.

How would you divvy up the money though? Sales are not equal everywhere and each little fiefdom wants its say on how things are taxed.

Add my voice to the list of people saying we should have a national online tax and distribute the revenue according to the shipped states / locality. Either that or make the federal government maintain a database of local tax laws, and simply send the transaction and the shipping address. Sellers could just make a call on the system and then it would automatically send back the correct tax. The current tax situation is unfairly distorting the market away from local businesses, which is a significant concern.

Incorporating and maintaining different and sometimes constantly changing sales tax into your point of sale system for 50 states is no small task.

Indeed it isn't. So eBay/PayPal or some other third party will no doubt offer sales tax calculation/collection/payment as a service at some point shortly after any such legislation passes. I'm pretty sure Amazon already has the infrastructure. The seller may have some extra work in correctly identifying the type of merchandise (books/clothing often get exceptions), but I don't really see this as being a big deal from the technology/maintenance perspective.

i found it odd that it was up to the Person to do there tax's in the US who do they just not do an blanket sales tax? no matter what state your in (sure its something like 5% in the USA?)

see in the UK VAT/TAX is basically killing us at 20%, it dropped to 15% then back to normal 17.5% then they upped it high 20%, problem is prices did not go down when VAT went down to 15%, but prices did go up right away soon as it went to 17.5 and 20%

but any way all VAT/TAX is done at the business end in the UK, as its very easy to not declare it if the Person is not doing it, why this is not done in the US seem odd as they are missing on an large amount of undeclared tax due to this

only problem with ebay any way you lose 12% when you sell stuff on ebay before sales tax (in the UK it would be 32% due to 20% VAT/TAX if your VAT registered that is)

If this gets through I'll seriously consider buying more expensive electronics as gift imports from Germany. Shipping get cheaper these days, and you get a 20% off because no VAT.

Seriously, why is a sales tax even existing among the states? Inefficient and detrimental to a consumption-driven economy like the US.

Consumption taxes shift the market towards saving, which many think is a good thing.

I would agree with this if we had no income tax, but right now since we already have income tax I don't see why we should expand sales tax.

The whole point of taxing you 100 different ways is to obfuscate the amount of tax you are really paying. If people had to just cut a check every year for their taxes there would be riots in the streets when they saw how much it was.

I've gotta say, I have no sympathy for eBay's position on this. If you buy something on eBay, or anywhere else you were always (technically) required to pay sales tax -- just like you have to at any small business. It's just that no one ever did, which amounted to a subsidy for online retail.

Well said. Subsidizing ebay at the expense of local business is terrible economic policy.

All that's changing here is that they're going to start actually enforcing the law.

This is false. What's changing is who has the responsibility for reporting and collecting the taxes. Under current law, the consumer has that responsibility.

I don't really see how your statement is meaningfully different than the one you disagreed with. Reporting requirements are an implementation detail, essentially a subset of enforcement. It seems to me you're essentially in agreement.

If this gets through I'll seriously consider buying more expensive electronics as gift imports from Germany. Shipping get cheaper these days, and you get a 20% off because no VAT.

Seriously, why is a sales tax even existing among the states? Inefficient and detrimental to a consumption-driven economy like the US.

Consumption taxes shift the market towards saving, which many think is a good thing.

I would agree with this if we had no income tax, but right now since we already have income tax I don't see why we should expand sales tax.

The whole point of taxing you 100 different ways is to obfuscate the amount of tax you are really paying. If people had to just cut a check every year for their taxes there would be riots in the streets when they saw how much it was.

Then maybe the government should mail everyone a receipt at the end of the year so they know how much it costs to run a government and an active military. Then perhaps you'll appreciate where the money is going.

I'm am suspicious of any of those large companies who support this. I think they only do so, because they know that sales and use tax compliance is a huge burden and it will limit competition.

Probably.

The obvious solution is to just have a national sales tax and let the feds kick back money to the states based on where transactions happen. The current meshwork of regulations does essentially the same thing, but much less efficiently.

Read the text of the bill, before you complain too much. Specifically, it requires states that want to receive sales taxes to "software free of charge for remote sellers that calculates sales and use taxes due on each transaction at the time the transaction is completed, that files sales and use tax returns, and that is updated to reflect rate change ..."

Legislators aren't complete idiots. They'll generally try to make new requirements and restrictions as palatable as possible to the general public. I'm actually surprised they didn't limit the tax to only statewide taxes.

If this gets through I'll seriously consider buying more expensive electronics as gift imports from Germany. Shipping get cheaper these days, and you get a 20% off because no VAT.

Seriously, why is a sales tax even existing among the states? Inefficient and detrimental to a consumption-driven economy like the US.

Consumption taxes shift the market towards saving, which many think is a good thing.

I would agree with this if we had no income tax, but right now since we already have income tax I don't see why we should expand sales tax.

The whole point of taxing you 100 different ways is to obfuscate the amount of tax you are really paying. If people had to just cut a check every year for their taxes there would be riots in the streets when they saw how much it was.

Then maybe the government should mail everyone a receipt at the end of the year so they know how much it costs to run a government and an active military. Then perhaps you'll appreciate where the money is going.